Travelodge has reportedly asked landlords to allow for a rent reduction of £146m over the next two years as it continues to shore up cash amid the ongoing pandemic.
In a letter seen by the Financial Times, the budget hotel group said that it expects to lose £350m in sales this year, with recovery to 2019 revenue levels expected to take “several years” following the crisis.
The group has now proposed that rent is paid monthly, rather than quarterly, until the end of next year. The offer is due to be sent to landlords today (4 May), and will reportedly ask for the acceptance of reduced payments.
News of the proposal comes only days after landlords were reportedly putting pressure on Travelodge to pay its rent, with claims that the budget hotel operator was “taking advantage” of the coronavirus crisis to cut bills that it can afford to pay.
A group of 82 landlords reportedly wrote to Travelodge last week, rejecting the company’s request to cut its rent bill by 50% until the end of next year, expecting the hotel group to seek a £175m reduction in rent bills.
However, the operator has now said that the £146m rent hit it is asking for amounts to around 3% of the £4bn due for the remainder of its lease payments.
The group has also offered landlords an optional extension to leases once their term ends, as well as a share of profits if the operator “outperforms” its baseline. In total, it now expects to pay a third of its £230m annual rent bill in full.
According to the letter, shareholders had previously written down the value of their equity by around £200m due to an extra £100m in acquired debt to help navigate the pandemic. The debt includes a £60m credit facility provided by investors.
Viv Watts, who owns two Travelodge hotels, told the Financial Times that the hotel’s directors had warned landlords that the business could become insolvent next year if rent cuts were not agreed. However, he argued that the operator should still “exhaust all avenues of finance” before negotiating on rent.
The dispute between landlords and tenants has been “among the most public” in recent clashes, according to the newspaper. Quoting data from the latest Remit Consulting report, it noted that for the three months to 24 June, retailers have reportedly paid just over half the rent they owe, which was originally due on 25 March.
Among those that have withheld rent thus far are Boots, Superdrug, and Burger King, with McDonalds now the latest high street name to reportedly seek rent cut from landlords.